Amazon Officially Joins Online Payments Fray with ‘Flexible Payments’

With its official unveiling on Friday of an early version of an online payments system, e-commerce giant Amazon.com Inc. has launched itself into head-on competition with established players like PayPal Inc. and well-funded upstarts like Google Checkout. The service, called Amazon Flexible Payments, is in a so-called beta stage with four named merchants and faces what some experts see as an uncertain future in what it is now a heavily competitive business. But it also offers features online merchants may find attractive, including automated clearing house transfers on top of credit card-backed transactions and the ability to aggregate micropayments for more efficient pricing. Also, Amazon is charging only transaction fees for Flexible Payments, with no set-up or minimum charges. The Seattle-based merchant, which got its start on the Internet in 1995 as a bookseller and quickly grew into a provider of Web services for other e-commerce sites, boasts some 69 million registered customers who buy from the site at least once a year. That's more active accounts than any other online payments service, including PayPal (35.9 million). Amazon Flexible Payments works most smoothly with these customers, since their payment details have already been captured, but non-Amazon customers will be able to use the service after a re-direct to Amazon's site to create an account, according to an Amazon spokesman. Some experts cite Amazon's customer loyalty and its experience with Amazon Payments, a service that lets users of the company's online auction and marketplace systems pay each other, as critical advantages. “It makes perfect sense for a company with Amazon's breadth and business model to do its own payments,” says payments consultant Steve Mott, principal of Stamford, Conn.-based Better Buy Design, in an e-mail message to Digital Transactions News. “It has shown it can successfully self-insure on e-check payments via the ACH. Add to that strong customer loyalty and excellent prowess with risk management, and you have a new business that can improve both the top and bottom lines.” But Amazon may face a daunting uphill climb against established rivals. “[Flexible Payments] will challenge PayPal and Google Checkout, but may find it difficult converting PayPal users, in particular,” says Adil Moussa, an analyst with Boston-based Aite Group LLC, in an e-mail message to Digital Transactions News. “They are a loyal group.” For the beta version, Amazon is aiming Flexible Payments at developers of e-commerce software, positioning it as a highly programmable payment service that follows other Web services the company has introduced over the past five years, including on-demand storage and computing power. The new payment service allows merchants and buyers to set rules determining such factors as allowable minimum and maximum transaction amounts and whether payments are one-time or recurring. These rules, or preferences, can also determine which payment methods buyers may use?credit cards, e-checks, and Amazon Payments balance transfers are allowed?and who pays Amazon's transaction fees. Pricing is 1.5% plus a penny for Amazon Payments transfers, 2% plus a nickel for ACH debits, and 2.9% plus 30 cents for payments backed by credit cards. This pricing compares favorably with that of PayPal, which enables card, ACH, and prepaid transactions, and Google Checkout, whose e-wallet feature for now allows only credit card charges. For transactions under $10, though, Amazon's credit card fee rises to 5% plus a nickel, and for Amazon Payments balance transfers of less than a nickel, the company levies a fee of 20%, with a minimum fee of a quarter of a cent. Amazon has announced these developers have agreed to adopt Flexible Payments so far: Jungle Disk, a provider of back-up systems; Freshbooks.com, which handles electronic invoicing for small businesses; Buxfer.com, a processor of person-to-person payments; and Beetlabs.com, a vendor of music. “We anticipate that lots of new applications will start to come online in the coming weeks and months as [Flexible Payments] becomes available to more developers,” says an Amazon executive in a blog posted Friday. Amazon will not release projections for expected volume on Flexible Payments, nor will it comment on whether it is planning to introduce its own credit-backed payments, similar to the recently introduced PayPal Pay Later feature and the 5-year-old Bill Me Later service of I4 Commerce Inc. This type of online payment, in which the seller is able to extend credit to the buyer and have it underwritten by a bank or financial-services company, is seen as a way to reach customers who favor credit cards but don't want to, or can't, use their cards on the Internet. “I don't think it'll be very long before they're running their own credit operation,” says Mott. For now, Amazon's biggest rival is unfazed by the launch of Flexible Payments. “PayPal has always faced competition?even from some of the largest financial institutions in the world?and we have continued to lead the market,” says a PayPal spokesperson in an e-mail message to Digital Transactions News.